ECONOMIC OUTLOOK 1999



CHAIR’S SUMMARY

ECONOMIC COMMITTEE PLENARY MEETING

9-10 AUGUST 1999

ROTORUA, NEW ZEALAND

The APEC Economic Committee (EC) held its second plenary meeting for the 1999 cycle on 9-10 August in Rotorua, New Zealand. The meeting was chaired by Dr. Mitsuru Taniuchi of Japan and attended by Australia; Brunei Darussalam; Canada; Chile; the People’s Republic of China; Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia; New Zealand; Papua New Guinea; Peru; the Republic of the Philippines; Russia; Chinese Taipei; Thailand; the United States of America and Vietnam. The APEC Secretariat was present. The Pacific Economic Cooperation Council (PECC) was represented as an observer.

1. Adoption of Agenda

The Committee adopted the agenda as proposed by the Chair.

2. Business Arrangements

The APEC Secretariat informed the Committee of the business arrangements for the meeting.

3. Economic Outlook

a. Discussion and Finalization of the 1999 Economic Outlook (including Report on the Outlook Taskforce Meeting, 8 August)

The Chair noted the following points: one of the major focuses of the EC’s work in 1999 is the Asian crisis, which has been a central concern for the APEC community. The EC has taken on challenges posed by the crisis and has undertaken two major projects focusing on the crisis. The 1999 Economic Outlook surveys recent economic developments and short-run prospects for APEC economies, including the impact of the crisis. The other project focusing on the crisis is “APEC Economies beyond the Asian Crisis”, which looks into long-term implications of the crisis and explores forward-looking responses. The two projects are complementary.

The Chair expressed his appreciation for the work of the Chilean team, led by Dr. Alvaro Garcia Hurtado, a former Economic Minister, who took on the challenging responsibility of preparing this year’s Outlook. He also noted the importance of collaborative efforts in preparing this year's Outlook. All member economies have made valuable contributions by preparing their individual economy reports according to a prescribed format and updating the data. Many economies have also spent much time and energy, under tight schedules, to carefully review draft reports prepared by Chile and provide various comments to improve the quality of the final product.

Dr Garcia, the Chair of the Outlook Taskforce, reported the summary of the Taskforce’s meeting discussion. He also expressed his appreciation for the EC Chair’s support in preparing the report.

Dr Garcia reported that one economy continued to have reservations about retaining a section of Chapter 1 assessing the performance of the IMF, and would consult with his capital to check whether the redrafted text was appropriate to be included in the Economic Outlook. A few economies also expressed strong reservations about retaining the text dealing with the International Financial System (IFS) in Chapter 1. Other economies, on the other hand, felt that work in this area was valid, and that it was useful to include it in the Outlook.

Following Dr Garcia’s report, an extensive discussion took place at the Committee on whether the Economic Outlook should include the text that discusses the IFS. The Chair summarized the discussion as follows:

1) All economies agreed that the Economic Outlook should not be duplicative nor counterproductive with the work that is being undertaken in other APEC fora.

2) There were two opposing views as to the specific treatment of the discussions on the IFS. A view held by a few economies was that including the discussion on policy options for IFS reform in the Economic Outlook could be counterproductive. This was because the deputies of the Finance Ministers have already been asked to prepare a report on this issue for Leaders, and are due to finalize it within a short period of time. On the other hand, other economies including Chile felt that to describe the relevant aspects of the IFS in a factual manner was not counterproductive. They noted that this year’s Outlook canvassing key economic trends and issues, including the IFS issues is useful for a wider audience because the IFS issue is one of the key issues arising from the crisis that is the main theme of this year’s Outlook. The difference in the two views could not be resolved during the meeting.

The revised draft Economic Outlook, which was distributed at the Taskforce meeting, was endorsed by the Committee to be submitted to the Ministers Meeting, subject to the necessary changes to be made as agreed at the meeting. The Committee appreciated the extensive efforts headed by Dr Garcia in producing what will become one of the key deliverables of the Committee this year.

b. Preparations for the 2000 Economic Outlook

Ms. Margarita Songco of the Philippines (the coordinator of the 2000 Outlook) informed the meeting that the Philippines is considering looking into trade and development within the APEC region as a potential main theme. The importance of this theme has been underscored by the expansion of trade within the APEC region during the period of 1989-1999 and by the fact that next year APEC is at midpoint to the Bogor goals of 2010/2020. The new round of WTO trade talks which are expected to be launched at the Seattle WTO Ministerial Meeting in November 1999 will give a good impetus to this theme. Bilateral and multilateral trade agreements may also be examined. The Philippines will take stock of various existing studies carried out within and outside of APEC. The Philippines also briefly mentioned that it is looking forward to hosting the APEC Economic Outlook Symposium to be held, for two days, in early June 2000. The meeting noted this briefing, and agreed that the trade and development theme would be appropriate for inclusion in the Outlook next year. The meeting also suggested that the Outlook coordinator work closely with APEC policy fora throughout the year to ensure that the work is mutually complementary.

4. APEC Economies Beyond the Asian Crisis

The Chair briefed the meeting on the background on the report, and the discussions of the small group meeting on August 6. The Asian crisis has been a central concern for the APEC community since its onset. Recovery appears to be taking hold in much of Asia, but many of the challenges posed by the crisis remain. In order to address this central concern for APEC, the EC has been undertaking a research project focusing on long-term implications of the crisis. The project is forward-looking, rather than delving into such issues as why the crisis happened or whether or not the responses of the IMF were appropriate.

The Chair highlighted the major points of Main Report (Part I) of the draft progress report. The four lead economies, Japan, Korea, Chinese Taipei and the Philippines briefed the meeting on the outcome of their research components (Part II) of the progress report. The meeting, then, discussed the progress report.

Following the discussion, the Chair concluded the following:

(1) There was strong support for the progress report (2) Addressing the structural weaknesses highlighted by the crisis, the main message of the report, is very important (3) The Committee noted that this project is work in progress and encouraged lead economies to further develop their work.

5. Infrastructure

a. Report on the Public/Private Sector Dialogue in Kuala Terengganu, April 21-24, 1999

Malaysia briefed the meeting on the outcomes of the Public-Business/Private Sector Dialogue on Infrastructure and Sustainable Development held in Kuala Terengganu in April 1999. Its themes were “sustainable urbanization for the 21st century” and “preparing investment for the information age and beyond”. Despite limited attendance, quality outcomes were obtained in such areas as sustainability in infrastructure development, public-private sectors interaction, and financial structures and modelling for sustainability. The proceedings of the Dialogue will be published by the end of this year.

b. Report on the Activities of the Infrastructure Workshop and Discussion of Main Issues and 1999 Deliverables

Dr Bambang, Chair of the Infrastructure Workshop, reported on the activities of the Workshop. The Regional Integration for Sustainable Economies (RISE) project, coordinated by the United States, will hold a symposium in New Zealand, 8-10 September 1999, to study pilot projects, methodologies and incentives for private sector participation. On the Infrastructure Facilitation Network, Chinese Taipei has received responses to its annual update of the database from a number of economies. A preliminary proposal for hosting the Dialogue in 2000 has been received from the Australian APEC Study Centre and an outline of major areas of possible emphasis has been distributed and was discussed. Funding arrangements from both public sector and private sources have not been confirmed.

Dr Bambang also reported that the Workshop exchanged views on the SOM Chair’s draft recommendation for the Workshop to be removed from the umbrella of the EC and be reconstituted as an ad-hoc forum. There was a range of views from member economies, with no consensus on a preferred option. Dr Bambang expressed his own view that the working relations between the Workshop and EC are good and he sees little need to change the present arrangement.

The EC meeting discussed this issue and a number of members noted that the term “ad-hoc” needed to be clarified. There was no consensus on the location of the IWS.

6. Promotion of Knowledge-based Industries (KBIs) in the APEC Region

Korea reported to the meeting on progress on the project on KBIs. As the first phase, an expert seminar was organized in June 1999 in Seoul, with the aim of laying the necessary groundwork for the research activities for the second phase. It examined the key issues concerning KBIs and the knowledge base in the APEC region.

Three potential issues for research in APEC are: (i) assessment of the preconditions for developing “infrastructure”; (ii) examination of the policy environment conducive to the expansion of the knowledge-base; and (iii) examination of possible areas of cooperation for the promotion of KBIs. Australia and Canada indicated their willingness to join in the research work. Regarding the future schedule, the EC Plenary in February 2000 will discuss the preliminary results of the research. A draft report will be circulated to EC members by May 2000 and the final report will be tabled at Leaders and Ministers Meetings in Brunei.

The meeting discussed the progress with the project to date. The Chair summarised the discussion: (1) The committee supported the project and endorsed its draft progress report as it stood (2) Australia and Canada have joined and other economies were also encouraged to join (3) Korea expects that the final report of this project will be a major deliverable for 2000 APEC.

7. Assessing APEC Trade Liberalization and Facilitation: 1999 Update

After the Chair noted that the EC remains committed to providing analytical contributions to TILF which is a priority policy agenda of APEC, Dr. Abe of Japan briefed the meeting on major findings of the study.

The research project has updated and expanded the EC’s 1997 study to assess, in a quantitative manner, the significant economic benefits of trade liberalization and facilitation. The 1999 updated study concluded that the implementation of trade liberalization and facilitation measures that APEC members have committed to date to implementing would increase real income (GDP) in the APEC region by US$ 75 billion (in 1997 prices) per year, or 0.4 percent of the region’s total GDP. This income gain would be attained after all effects of such measures materialize gradually over time. It also affirms substantial gains from APEC trade liberalization and facilitation measures, first identified in the 1997 study. Although the estimated overall gains in terms of the ratio to the region’s total GDP remain the same (0.4%), the update study indicates the overall gains would be larger than those estimated in 1997, due to improvements in IAPs thereafter and the participation of new members.

The meeting discussed the draft final report. The Chair concluded as follows: (1) the Committee welcomed the report (2) the major remaining issue regarding the draft report is how to present key findings of the study in “Highlights”. (3) Economies were encouraged to work with Japan to finalise the draft during the remaining time in Rotorua.

8. EC’s work on FEEEP Follow-up - Work on the Costs and Benefits of Trade Liberalization and Agricultural Reform Policies -

The meeting considered how best to carry out the FEEEP follow-up work assigned to the EC by the SOM. The meeting agreed on the following modality of implementing the task:

The Committee will use its Plenary meetings as an information sharing mechanism on studies of agricultural trade liberalization, by means of a regular agenda item. During the next EC Plenary meeting in Brunei and possibly thereafter, member economies that have undertaken any relevant studies will share major findings of such studies for discussion between EC members. In order to facilitate meaningful discussion, at least summaries of relevant research work to be shared will be circulated in advance of the meeting so that all economies can prepare for discusssion.

9. Other Businesses

a. EC 1999 Annual Report to Ministers

The agreed schedule for finalising the report is: the Chair will circulate a draft report incorporating the outcomes of this meeting and reflect any major comments from economies within a day. Any additional comments will be required by the middle of next week to finalise the report. The Chair noted that he plans to prepare a shorter, succinct report than those prepared in previous years, highlighting only key points of the EC’s activities.

b. Future Meetings and Proposals for Future Work

The Chair noted that the next EC plenary would be held in February 2000 back to back with SOM I (February 12-21). He also mentioned that if a preparatory SOM were held later this year, he would be invited to represent the EC.

The Chair reminded the Committee that a symposium on “The Future of Asian Pacific Economies” would be held on December 6-7 in Tokyo. A number of well-known, respected economists, leading journalists, and business leaders will be invited and all EC members will be welcome to attend.

As regards future work, the Chair noted that at the next EC Plenary in February, the Committee will consider the work program for 2000. Member economies were encouraged to propose potential projects.

c. 1999 Publications and Other Matters

(i) 1999 Publications

The Committee was informed that three EC documents, namely, 1999 Economic Outlook, the Progress Report on the APEC Economies beyond the Asian Crisis, and Assessing APEC Trade Liberalization and Facilitation: 1999 Update, will be published in time for Leaders and Ministers Meetings in Auckland in September. In order to meet this timing, it will be necessary to submit the final documents to the Secretariat no later than 20 August. Members were encouraged to comply with this deadline.

ii) Report on the July 1999 BMC Meeting

The Committee was informed that the July BMC meeting had approved US$ 70,500 for publication of EC Reports in 2000, from the 2000 Operational Account. The BMC had also approved Funding of keynote speakers to attend the APEC 2000 Economic Outlook Symposium with the amount of US$ 31,800. The EC noted that the BMC in approving the funding of publications in 2000 had noted the reduction in print runs and requested that the EC continue to consider cost effective options for the future production and distribution of its reports including greater use of electronic distribution rather than hard copy.

(iii) Document Access

Consistent with past practice, the meeting agreed with the agreement of coordinators and contributors to allow public access to all finalized documents.

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